After China Demurs, Mongolia Approaches India to Finance Oil Project

Mongolia is looking at India and other investment partners as its economy contracts and its debt burden grows amidst Chinese sanctions over hosting the Dalai Lama.

New Delhi (Sputnik) — That India-China compete in various geographies to gain strategic and economic advantage is common knowledge, but what’s new is that smaller economies are trying to encash the rivalry to their advantage – in this case Mongolia.

Beijing’s northern neighbor is facing the dragon’s fire for inviting the Tibetan spiritual guru the Dalai Lama in November. Since then, Beijing has taken a slew of measures to punish Mongolia and its fledgling economy, including imposing border tariffs on its land-locked neighbor and the latest being its refusal to extend credit to an oil refining project. But, Ulaanbaatar has dialed India and New Delhi is expected to come to rescue.

A statement put on Mongolian Prime Minister Erdenebat Jargaltulga’s website shows that he has asked relevant ministries to negotiate with India’s Exim bank to seek approval to build an oil refinery and pipelines with $1 billion in infrastructure funding that was negotiated last year. The project could boost the nation’s gross domestic product by 10 per cent. The Mongolian government intends to use $700 million of the loan for an oil refinery and $264 million for oil pipelines, the statement said. Located in Sainshand county, the refinery will have a capacity to process 1.5 million metric tonnes of oil per year. It will produce 560,000 tonnes of gasoline, 670,000 tonnes of diesel fuel and 107,000 tonnes of liquefied gas annually. The 20-year loan will have an interest rate of 1.75% and principle payments will be waived during the five years. The $1 billion credit line agreements were signed during Prime Minister Narendra Modi’s visit last year to fund railroad and infrastructure projects in Mongolia. “We have a long spiritual relationship with India. It’s important that India raises its voice against the unilateral measures China is taking against us which is hurting our people especially when severe winter is upon us,” Gonchig Ganbold, Mongolia’s ambassador to India told the media earlier in December.

Mongolia’s oil fields are primarily located in Dornod province in eastern Mongolia, about 545 kilometers northeast of Sainshand. PetroChina operates the oil fields and has produced 7.5 million barrels through the first 11 months of this year, according to Mongolia’s National Statistical Office (NSO). All of Mongolia’s crude is exported to China.

Mongolia imported 346,500 tonnes of gasoline worth $172 million and 479,800 tonnes of diesel worth $219 million in the first 11 months of this year, according to the NSO. More than 97% of the petrol and diesel was imported from Russia.